So much for those 40-year careers and a fat pension check. Gone are the days of young workers sticking it out with one employer until retirement . Young workers will now likely have several jobs, and several employers in a lifetime. But there is one employer you shouldn’t forget about – yourself. Learn how to create passive income using your current active income, and some day you may be able to live off the passive income.

I firmly believe that everyone should be self-employed in some respect, either by running their own business, or developing a product or idea that continue to pay dividends for years to come. Either way, we have to get outside of the single-employer, single-income stream mentality that many of our parents and grandparents had.

Creating a passive income is not something that happens overnight. It takes many years of accumulating capital, and producing and acquiring things that return passive income to build up enough returns to sustain your lifestyle. However, once you learn how to create passive income you begin to understand the power of things like compounding interest and appreciation.

What is passive income?

The best way to define passive income is to define active income. Active income is money earned by doing work. The salary you earn at your job is active income. The money you earn creating websites on the side is active income. You have to physically perform some action over a period of time to earn that money.

Passive income is the exact opposite of that. For income to be considered truly passive, you have to do nothing to receive it, beyond the initial work to produce the asset. For example, authors earn royalties on books years after they write the book and earn back the advance. As long as those books keep selling, they’ll keep earning royalties.

Same goes for interest compounding on your savings account at the bank. That interest accumulates day after day regardless of what you do or don’t do. It accumulates while you sleep and while you are on vacation, just the same as it would if you stood over it inside the bank vault for 24 hours a day.

Learning how to create passive income is a key element to cashing out early. When you first start building a passive income portfolio, you may only be earning a few dollars a month. But over time, as your working capital grows, so will your passive income. One day, that income may be enough to support your basic expenses and free you from the requirement to earn an active income. This is especially true if you can pay off debts and drive down expenses prior to retiring early.

To build my own passive income portfolio, I have started investing in stocks that yield high dividends (historically). I also am interested in investing in paid-for real estate, and would some day like to write a book or two. The idea is to get started early so you have adequate time to build your passive portfolio with active income.